Energy deal tightens Russia ties to Assad

Borzou Daragahi and Henry Foy

Thursday, 26 Dec 2013 | 8:36 PM ETFinancial Times

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An energy deal between Moscow and Damascus could influence strategic calculations for both the civil war in Syria and the drive by regional powers to exploit offshore oil and gas deposits off the east Mediterranean coast.

The state-controlled Russian group Soyuzneftegaz and the Syrian regime this week signed a deal that allows for the exploration and drilling, development and production of oil and gas in a 2,190 square kilometer area off Syria's coast, the first-such deal for the country.

It might be years before the deal is implemented, analysts said. But the concession, which is to span 25 years, further solidifies Moscow's ties to Damascus ahead of a highly anticipated January conference in Switzerland in which the future of Syria may be negotiated.

"It's a way for the Russians to capitalize on their political support for the regime," said Jihad Yazigi, editor-in-chief of the Syria Report, an online economics publication.

Ayham Kamel, senior Middle East analyst at the Eurasia Group, added: "This is once again a message of support from Russia for the Syrian regime."

"The implicit support from Moscow in this deal should be seen as bolstering the government in Damascus and [could] produce in the medium-term a new source of revenue for the regime."

With much of Syria's other oil reserves in the largely Sunni Muslim east and northeast of the country and currently under the control of rebel factions, the deal dangles the prospect of a potential source of revenue for President Bashar al-Assad's Allawite co-religionists, which dominate the regime. It also gives Russia a stake in the scramble for Mediterranean energy reserves that already includes Israel, Lebanon, Turkey and Cyprus and other countries.

In a 2010 report, the US Geological Survey estimated 1.7 billion barrels in undiscovered oil and 122 trillion cubic feet of natural gas in the so-called Levant Basin along the eastern Mediterranean.

It remains unclear how and when any exploration, in a coastal area off the coast roughly between the cities of Banias and Tartous, will begin under war-ravaged Syria's current abysmal security circumstances.

"I was surprised to see this deal concluded at this time when this conflict is going on," said a Jordanian official who is closely following Middle East energy issues. "I question the ability of Russia to implement and stick to this deal. You normally need a high degree of stability to make such a deal."

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Soyuzneftegaz, controlled by Russia's central bank and run by former energy minister Yuri Shafranik, will shoulder the estimated $15 million initial costs of surveying and secondary $75 million test drilling costs, according to a report published by the official Syrian Arab News Agency. Sleiman Abbas, Syria's petroleum minister, noted that "implementing the contract in the current circumstances in Syria will constitute a great challenge", according to SANA.

Soyuzneftegaz has largely focused on development projects in the former Soviet Union, but the group has also taken part in other Syrian development projects. In 2004, it received exploration licences for two development blocks in Syria where it has drilled two exploration wells, but so far has not discovered proven hydrocarbons.

At the signing ceremony, Mr Abbas accused rebel groups of sabotaging the country's eastern oil sector and smuggling oil to Turkey, which backs the uprising against Mr Assad and will warily eye any attempt by Damascus to exploit energy off the Mediterranean.

Azamat Kulmuhametov, Russia's ambassador to Syria, said the contract signaled "proof of the strong economic relations" between Moscow and Damascus in the face of "arbitrary sanctions" imposed on the Syrian regime.

Diplomats across the eastern Mediterranean have been scrambling behind the scenes since 2010 to position their nations to benefit from anticipated reserves. Both Israel and Cyprus have already made offshore discoveries. Israel is exploring a variety of pipeline and natural gas projects involving regional countries such as Jordan, Egypt and Turkey.